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on Regulation |
| By: | Rabindra Nepal (School of Economics, The University of Queensland); John Foster (School of Economics, The University of Queensland) |
| Abstract: | The debate on electricity networks privatization in the Australian National Electricity Market is an important public policy concern but remains unsettled. This article reviews and compares the economic performance between the privately and state-owned electricity networks in Australia across three dimensions encompassing prices, quality and investment. The comparative analysis suggests that privately owned networks are not worse off than the state-owned networks in terms of performance. However, international empirical evidences indicate that the efficiency gains to consumers from electricity networks privatization will depend on the underlying regulatory regime and regulatory institutional framework. The long-term concerns on future investments, security of supply, climate change and economic regulation of networks will continue to prevail once the short-term efficiency gains from privatization are exhausted. These concerns imply that the role of the state will still be significant, although transformed, even after electricity networks privatization raising questions on the motives of privatization. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:541&r=reg |
| By: | Achim I. Czerny (VU University Amsterdam, the Netherlands); Anmin Zhang (University of British Columbia, Canada) |
| Abstract: | Most airports operate under public ownership, while some are privatized and economically regulated. Only a few airports are privately owned and experience little or no ex-ante regulation of airport charges. On the other hand, airports nowadays earn as much revenue from transport-related activities as from commercially-oriented business activities. Taken together, these two observations lead to a natural question: How to optimally integrate profits derived from commercial activities into the regulation of airport infrastructure charges? This question is addressed in this paper. We discuss basic issues that are relevant for the design of regulatory regimes for airports and how these issues can be tackled by using airport profits derived from commercial activities for infrastructure cost recovery. The main insights are summarized at the end of each section and then are further summarized in the conclusions section. |
| Keywords: | Airport; monopoly; regulation; single till; dual till |
| JEL: | L42 L51 L93 |
| Date: | 2015–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150049&r=reg |
| By: | Juranek, Steffen (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | This article investigates the incentives to unbundle operations and infrastructure in the railway industry in a two-country model with international network effects from the viewpoint of national governments. The analysis shows that the decision to unbundle institutionally or organizationally with separated accounts depends crucially on the importance of cross-border transportation. For a sufficiently high importance of cross-border transportation, national governments choose accounting separation. However, national governments are stuck in a Prisoners' dilemma and would be better off coordinating on a separated industry structure. This result justifies major policy initiatives by the European Union but explains also actions of national governments in implementing these initiatives. |
| Keywords: | Bundling; vertical integration; international competition; railway; regulation; cross-border transport |
| JEL: | F53 L50 L92 |
| Date: | 2015–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2015_018&r=reg |
| By: | Elbert Dijkgraaf (Erasmus University Rotterdam, the Netherlands); Tom van Dorp (Solarplaza International BV, the Netherlands); Emiel Maasland (Erasmus University Centre for Contract Research and Business Support (ERBS) BV, the Netherlands) |
| Abstract: | Growing concern for climate change and rising scarcity of fossil fuels prompted governments to stimulate the development of renewables. This paper empirically tests whether feed-in tariff (FIT) policies have been effective in the development of photovoltaic solar (PV), explicitly taking into account structure and consistency of FITs. Panel data estimations are employed for 30 OECD member countries over the period 1990-2011. We find a positive effect of the presence of a FIT and the development of a country’s share of PV in the electricity-mix. This effect increases if policies are consistent. Tariff height is the most important characteristic of a FIT, but other characteristics such as cost level, duration of contract and restrictions on capacity levels can also not be neglected if the goal is to increase effectiveness of FITs. |
| Keywords: | Photovoltaic solar, Feed-in tariffs, Policy-consistency, Design characteristics |
| JEL: | C23 G11 H23 N70 Q42 Q48 |
| Date: | 2014–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20140156&r=reg |
| By: | Federico Boffa (Free University of Bolzano & IEB); Viswanath Pingali (Indian Institute of Management Ahmedabad); Francesca Sala (Competition and Markets Authority) |
| Abstract: | In this paper we look at the relative merits of two capacity utilization regimes in the merchant electricity transmission network: Must offer (Mo) where the entire capacity installed is made available for transmission and Non Must Offer (NMo) where some capacity could be withheld. We look at two specific cases: (i) Demand for transmission varies across time, and (ii) Vertical integration is allowed between investors in transmission network and electricity generators. In the case of time-varying demand under Mo, we find that a monopolist may underinvest in transmission when compared to NMo, although NMo may lead to more capacity withholding. In the case of vertical integration, we find that when the market power is with the generators of the exporting node, without vertical integration no welfare-enhancing merchant investment would occur. Further, if the generators in the importing node have market power, which of the two regimes is welfare enhancing depends on the parameter values. In case vertical integration is better, then Mo is better than NMo. Finally, we also argue that the incentive to collude among various transmission network investors is mitigated with Mo in place. |
| Keywords: | Electricity transmission, merchant lines, capacity utilization, vertical integration, collusion |
| JEL: | L94 D24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2015-12&r=reg |
| By: | Maria Dementyeva; Erik T. Verhoef |
| Abstract: | This paper studies road safety and accident externalities when insurance companies have market power, and can influence road users' driving behaviour via insurance premiums. We obtain both welfare and profit maximizing marginal conditions for first- and second-best insurance premiums for monopoly and oligopoly market structures in insurance. The insurance program consists of an insurance premium, and marginal dependencies ("slopes") of that premium on speed and on the own safety technology choice. While a private monopolist internalizes accident externalities up to the point where compensations to users' benefit matches the full (immaterial) costs, in oligopolistic markets insurance firms do not fully internalize accident externalities that their customers impose upon one another. Therefore, non-optimal premiums as well as speed and technology control apply. Analytical results demonstrate how insurance firms' incentives to influence traffic safety deviate from socially optimal incentives. |
| Keywords: | Accident externalities, congestion externalities, traffic regulations, road safety,second-best, market power |
| JEL: | D43 D62 R41 R42 R48 |
| Date: | 2015–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150025&r=reg |
| By: | Eran Raviv (Erasmus University Rotterdam); Kees E. Bouwman (Erasmus University Rotterdam); Dick van Dijk (Erasmus University Rotterdam) |
| Abstract: | The daily average price of electricity represents the price of electricity to be delivered over the full next day and serves as a key reference price in the electricity market. It is an aggregate that equals the average of hourly prices for delivery during each of the 24 individual hours. This paper demonstrates that the disaggregated hourly prices contain useful predictive information for the daily average price. Multivariate models for the full panel of hourly prices significantly outperform univariate models of the daily average price, with reductions in Root Mean Squared Error of up to 16%. Substantial care is required in order to achieve these forecast improvements. Rich multivariate models are needed to exploit the relations between different hourly prices, but the risk of overfitting must be mitigated by using dimension reduction techniques, shrinkage and forecast combinations. |
| Keywords: | Electricity market, Forecasting, Hourly prices, Dimension reduction, Shrinkage, Forecast combinations |
| JEL: | C53 C32 Q47 |
| Date: | 2013–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20130068&r=reg |
| By: | Jin Fan (School of Management, University of Science and Technology of China); Shanyong Wang (School of Management, University of Science and Technology of China); Yanrui Wu (Business School, University of Western Australia); Jun Li (School of Management, University of Science and Technology of China); Dingtao Zhao (School of Management, University of Science and Technology of China) |
| Abstract: | Personal carbon trading (PCT) is a downstream cap-and-trade scheme used to reduce carbon emissions from the household sector. It is argued that the PCT scheme could provide a buffer between the energy price and the total energy price, and thus energy demand remains stable. However these effects have never been verified. To fill in this gap in the literature, a price effect analysis is conducted. Firstly, a general utility optimization (GUO) model is proposed to obtain the general formulae of the price effect, substitution effect and income effect under the PCT scheme. Secondly, a specific version of the GUO model, namely a Cobb-Douglas utility function model, is employed to obtain the specific effect formulae to verify the buffer effect. Finally, a numerical example and a sensitive analysis are presented to demonstrate these effects. The results indicate that, under the PCT scheme, the total energy price and energy demand are less sensitive to the energy price changes. Thus, when energy prices fluctuate, the PCT scheme is capable of providing certainty in emissions reduction and is more effective than carbon taxes. On the basis of these results, implications of this research are discussed and suggestions for future research are provided. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:15-07&r=reg |
| By: | Christoph Böhringer; Brita Bye; Taran Fæhn; Knut Einar Rosendahl (Statistics Norway) |
| Abstract: | Climate effects of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a theoretical analysis on the economic incentives for emission abatement of producers subjected to carbon tariffs. We quantify the impacts of different carbon tariff designs by an empirically based multi-sector, multi-region CGE model of the global economy. We find that firm-targeted tariffs can deliver much stronger leakage reduction and higher efficiency gains than tariff designs operated at the industry level. In particular, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less randomly and less adversely affected than in previously studied carbon tariff regimes. This beneficial distributional impact could facilitate a higher degree of legitimacy and legality of carbon tariffs. |
| Keywords: | carbon leakage; border carbon adjustment; carbon tariffs; computable general equilibrium (CGE) |
| JEL: | Q43 Q54 H2 D61 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:805&r=reg |
| By: | Achim I. Czerny (VU University Amsterdam, the Netherlands); Zijun Shi (Carnagie Mellon University, United States); Anming Zhang (University of British Columbia, Canada) |
| Abstract: | Many firms offer “core” and “side” goods in the sense that side-good consumption is conditional on core-good consumption. Airports are a common example where the supply of runway and terminal capacity is the core good and the supply of various concession services (for example, car rental services) is the side good. While side-good supply can be responsible for a major share in total revenue, monopoly regulation typically concentrates on the control of core-good prices (“core prices” in short). Whether market power can indeed be effectively controlled by the regulation of core prices alone then depends on whether core-good consumption is a function of the price for side goods. This study empirically shows that a one-dollar increase in the daily car rental price reduces passenger demand at 199 US airports by more than 0.36 percent. A major implication of our findings is that for the case of airports, the effective control of market power may require regulation of both prices for core and side goods. |
| Keywords: | Core goods; side goods; airport; monopoly; car rentals |
| JEL: | L12 L43 L93 |
| Date: | 2015–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150041&r=reg |
| By: | Christiaan Behrens (VU University Amsterdam); Mark Lijesen (VU University Amsterdam) |
| Abstract: | We explore the characteristics of a capacity-then-price game for a duopoly market with product differentiation and stochastic demand. The analysis shows that a minimum threshold value for the level of vertical product differentiation exists, relative to horizontal product differentiation, for which existence of a Nash equilibrium in pure strategies is guaranteed. We find that when the quality and cost differences between the firms exactly offset each other, demand uncertainty causes equilibrium outcomes in capacities to become asymmetric. Without demand uncertainty, only a symmetric equilibrium can be established. This difference between stochastic and deterministic demand is the main driver behind our finding that if the regulator ignores the stochastic nature of demand, regulation lowers welfare for a large range of parameters, that is for approximately 10 per cent of the plausible parameter space. |
| Keywords: | Price competition, Capacity choice, Demand uncertainty, Product differentiation, Price dispersion |
| JEL: | D43 L11 L13 |
| Date: | 2012–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20120113&r=reg |
| By: | Adriaan Hendrik van der Weijde (VU University Amsterdam) |
| Abstract: | This paper analyzes the effects of price differentiation and discrimination by a monopolistic transport operator, which sets fares in a congestible network. Using three models, with different spatial structures, we describe the operator’s optimal strategies in an unregulated market, a market where price differentiation is not allowed (i.e., ticket prices must be the same for all users), and a market where price discrimination is illegal (i.e., ticket prices must only differ with the marginal external costs of users), and analyze the welfare effects of uniform and non-discriminatory pricing policies. The three models allow us to consider three different forms of price differentiation and discrimination in networks: by user class, by origin-destination pair, and by route. We generalize the existing literature, in which groups usually only differ in their value of time, and hence, there is no distinction between differentiation and discrimination. In our models, users may also have different marginal external costs; we show how these two differences interact. We also show how non-differentiated and non-discriminatory policies may increase or decrease welfare, and that non-discrimination can be worse than non-differentiation. The network models show that results obtained for a single-link network can be generalized to a situation where operators price-discriminate or differentiate based on users’ origins and destinations, but not directly to a situation in which differentiation is based on route choices. |
| Keywords: | price differentiation, price discrimination, transport, networks, congestion |
| JEL: | L11 L51 L91 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20140099&r=reg |
| By: | Bouwmeester, Maaike; Scholtens, Bert (Groningen University) |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gro:rugsom:14028-eef&r=reg |
| By: | Peter Mulder (VU University Amsterdam); Henri L.F. de Groot (VU University Amsterdam); Birte Pfeiffer (German Institute of Global and Area Studies Institute for African Affairs (IAA), Hamburg, Germany) |
| Abstract: | We present a detailed analysis of energy intensity developments across 23 service sectors in 18 OECD countries over the period 1980−2005. We find that the shift towards a service economy has contributed to lower overall energy intensity levels in the OECD, but this contribution would have been considerably larger if the service sector had realized the same degree of energy efficiency improvements as the manufacturing sector. In most OECD countries actual energy intensity levels in the service sector tend to decrease relatively slow, especially after 1995. If we control this trend for the impact of structural changes within the services sector – by means of a decomposition analysis – we find that in about one-third of the OECD countries, energy intensity levels in the service sector have increased over time. The impact of structural changes on aggregate energy i ntensity dynamics in the service sector has increased considerably after 1995, highlighting a relatively poor energy efficiency performance within a wide range of service sectors. We show that the introduction of Information and Communication Technology (ICT) plays a potentially important role here. Using spatial panel data regression analysis, we find a limited role for energy prices in explaining variation in energy productivity, casting doubt on the effectiveness of price instruments to enhance energy efficiency in the service sector. In contrast, climate conditions have a clear impact on energy productivity, especially the number of heating days. |
| Keywords: | energy intensity, convergence, decomposition, sectoral analysis, service sector |
| JEL: | O13 O47 O5 Q43 |
| Date: | 2013–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20130175&r=reg |
| By: | Hugo Emilo Silva (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Vincent van den Berg (VU University Amsterdam) |
| Abstract: | This paper resulted in a publication in <A HREF="http://www.sciencedirect.com/science/article/pii/S0191261514000939"><I>Transportation Research Part B: Methodological</I></A>, 2014, 67, 320-343.<P> This paper studies whether a regulator needs to correct the route structure choice by carriers with market power in the presence of congestion externalities, in addition to correct their pricing. We account for passenger benefits from increased frequency, passenger connecting costs, airline endogenous hub location and route structure strategic competition. We find that, for some parameters, an instrument directly aimed at regulating route structure choice may be needed to maximize welfare, in addition to per-passenger and per-flight tolls designed to correct output inefficiencies. This holds true when the regulator is constrained to set non-negative tolls, but also for the case of unconstrained tolling. |
| Keywords: | Route structure competition, Aviation policy, Hub-and-spoke networks, Fully-connected networks |
| JEL: | H2 L13 L93 R4 |
| Date: | 2013–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20130189&r=reg |